The Purchase Price Allocation (PPA) also referred to as the Fair Value of the Acquired Net Assets is a critical concept in accounting and finance. It denotes the value attributed to the assets and liabilities of a company that has been acquired during a merger or acquisition:
• The PPA is determined by valuing the net assets and liabilities of the acquired company.
• It includes tangible assets (such as property, equipment) and intangible assets (such as trademarks, patents).
• Liabilities are also considered in the calculation.
• Fair Value: The fair value of assets and liabilities is estimated.
• Difference between Purchase Price and Net Asset Value: This difference is assigned to the PPA.
• Amortization and Depreciation: Intangible assets amortize or depreciate over time.
• The PPA affects the balance sheet and the income statement.
• It may influence the profitability and financial position of the acquiring company.
